Gain and tax implications with selling your wrap note

[Carey L Rouse]

What are the gain or tax implications with selling my wrap note? I'll provide an example to explain. Lets say I get into a rehab project. I pay 40k for the house and 20k for the repairs and eventually refinance into a conventional loan. The ARV is 100k and my new conventional loan is 70k. Now instead of renting out the house, I do an owner finance deal and create a wrap mortgage for a new buyer who can't get conventional loans. I take 15k as a down payment and I create 2 mortgages in the wrap. 1st wrap mortgage is for 75k. 2nd wrap mortgage is 10k. At this point I'm still on the original 70k conventional mortgage but my new buyer is on the 2 wrap mortgages and they are holding the deed to the house. Now I sell the 1st wrap mortgage to a note buyer for 62k. Assume all this happens in less than a calendar year. What are my gain or tax implications? Is the sale of the 1st note for 62k taxable? How are the payments that I get from the 10k 2nd wrap mortgage taxed? Are there any other tax implications I should be thinking about?

Thanks